Steve Hamilton is a Tampa native and a graduate of the University of South Florida and the University of Missouri. He now lives in northern Kentucky. A career CPA, Steve has extensive experience involving all aspects of tax practice, including sophisticated income tax planning and handling of tax controversy matters for closely-held businesses and high-income individuals.

Friday, May 18, 2012

The CP2000: Underreported Income IRS Notice

I am somewhat impressed with the amount of information the IRS processes in order to generate CP2000 notices. The CP2000 is the “Underreported Income” notice. I have seen the IRS flag bank and broker accounts, independent contractor payments and even W-2s that clients failed to clue us on.

NOTE: Do you wonder what the cost to employers and financial institutions is to generate these documents? The government doesn’t care, but it is a societal cost. Ignoring it doesn’t make it free.

It matches these against approximately 140 million individual tax filers.

The IRS generates notices to almost 5 million taxpayers.

The IRS unit responsible, the Automated UnderReporter Unit, has approximately 2,500 employees.

You have to admit, there is lot going on for only 2,500 employees.

CP2000 notices come out twice a year. The IRS begins matching information during the summer with the goal of a December mailing. The second wave comes right after tax season – in the second half of April.

The IRS is notorious for skipping line with these ACS notices. You might find yourself with a deficiency notice while you still have time remaining on the ACS notice. Been there. Often you can get the IRS to walk-back the deficiency notice.

By the way, do not send an amended return in response to an ACS notice. These go to different units and will likely cause unnecessary correspondence and telephone time with the IRS. Been there too.

About Me

Thirty years years in tax practice. It's a long time, and I have seen virtually everything short of the fabled tax-exempt unicorn. I was raised in Tampa, went to school in Missouri, taught at Eastern Kentucky University, lived in Georgia, got pulled to Cincinnati when I married, have in-laws in England and a daughter going to the University of Tennessee. I am not sure where I will wind up next, but I hope there is better weather.